Wednesday, November 14, 2012

The proposal to raise the retirement age for Social Security (as opposed to,
say, raising the payroll cap) is sure to come up during budget negotiations. It
always does, and already has. Here's a very old
post (from 2005, with a few minor changes) on that topic:

A recent article claims that raising the retirement age is the most obvious
solution to solvency problems for Social Security. While I don’t agree with the
doomsayers on the solvency issue, it is still worthwhile to look at the costs
and benefits of such a proposal. ...

Is raising the retirement the most obvious solution? There are two benefits with
respect to solvency. Because people work longer, raising the retirement age
increases revenues coming into the Social Security system. Second, because
people retire later, the payout to retirees falls.

But what are the costs?

1. An increase in life expectancy does not necessarily imply that people are
healthier at age 65 or 70 than before. Suppose, for example, that medical
advances are discovered that extend the end of life by several years, but have
no effect on health prior to the last few years of life. In such a case there
would be an increase in life expectancy, but no increase in the health of
workers at the age of retirement. If people aren’t healthier, then increasing
the retirement age imposes a hardship over and above that faced by current
retirees.

2. It’s already difficult for elderly workers to find employment, and when they
do they are often underemployed relative to their skill levels. Raising the
retirement age will make this worse.

3. What about workers employed in physically demanding occupations? Is it
reasonable to ask them to work until, say, age 72? If not, how equitable is it
to have some workers work until 72, and others allowed to retire at a younger
age depending on their occupation?

4. Will this distort occupational choice decisions? Will workers, especially
those who are seeking work in the years close to retirement, choose strenuous
jobs in order to be allowed to retire earlier? How will we decide when a worker
is unable to work due to reasons associated with age?

5. The life expectancy of some groups of workers is lower than for others. If
poorer workers die younger than richer workers on average, and they do, then
raising the retirement age will have a larger impact on low income workers and
thus, in essence, be regressive.

Do the benefits exceed the costs? I don't think so. ...

A comparison of the costs and benefits or raising the payroll cap -- which mostly affects the well-off (hence their continued push of other alternatives that shift the costs elsewhere) -- leads to a different conclusion, at least for me.

[Update: I don't get it either when looking just at the numbers, but looking at it through an ideological lens explains the desire to make people believe that Social Security is in serious trouble, and hence in need of serious cuts. Starve the Beast through tax cuts or deception, it doesn't matter, the point is to reduce the government's provision of social insurance by whatever means gets the job done.]

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The Costs and Benefits of Raising the Retirement Age

The proposal to raise the retirement age for Social Security (as opposed to,
say, raising the payroll cap) is sure to come up during budget negotiations. It
always does, and already has. Here's a very old
post (from 2005, with a few minor changes) on that topic:

A recent article claims that raising the retirement age is the most obvious
solution to solvency problems for Social Security. While I don’t agree with the
doomsayers on the solvency issue, it is still worthwhile to look at the costs
and benefits of such a proposal. ...

Is raising the retirement the most obvious solution? There are two benefits with
respect to solvency. Because people work longer, raising the retirement age
increases revenues coming into the Social Security system. Second, because
people retire later, the payout to retirees falls.

But what are the costs?

1. An increase in life expectancy does not necessarily imply that people are
healthier at age 65 or 70 than before. Suppose, for example, that medical
advances are discovered that extend the end of life by several years, but have
no effect on health prior to the last few years of life. In such a case there
would be an increase in life expectancy, but no increase in the health of
workers at the age of retirement. If people aren’t healthier, then increasing
the retirement age imposes a hardship over and above that faced by current
retirees.

2. It’s already difficult for elderly workers to find employment, and when they
do they are often underemployed relative to their skill levels. Raising the
retirement age will make this worse.

3. What about workers employed in physically demanding occupations? Is it
reasonable to ask them to work until, say, age 72? If not, how equitable is it
to have some workers work until 72, and others allowed to retire at a younger
age depending on their occupation?

4. Will this distort occupational choice decisions? Will workers, especially
those who are seeking work in the years close to retirement, choose strenuous
jobs in order to be allowed to retire earlier? How will we decide when a worker
is unable to work due to reasons associated with age?

5. The life expectancy of some groups of workers is lower than for others. If
poorer workers die younger than richer workers on average, and they do, then
raising the retirement age will have a larger impact on low income workers and
thus, in essence, be regressive.

Do the benefits exceed the costs? I don't think so. ...

A comparison of the costs and benefits or raising the payroll cap -- which mostly affects the well-off (hence their continued push of other alternatives that shift the costs elsewhere) -- leads to a different conclusion, at least for me.

[Update: I don't get it either when looking just at the numbers, but looking at it through an ideological lens explains the desire to make people believe that Social Security is in serious trouble, and hence in need of serious cuts. Starve the Beast through tax cuts or deception, it doesn't matter, the point is to reduce the government's provision of social insurance by whatever means gets the job done.]